Cat Comes Back

It's been a pretty good year – more and more companies are realizing the folly of offshoring and are coming back to America. Sure it's a battle – traditional accounting and a myopic focus on labor cost get in the way of understanding reality – but perhaps the battle is being won.

Caterpillar Inc. is considering relocating some heavy-equipment overseas production to a new U.S. plant, part of a growing movement among manufacturers to bring more operations back home—a shift that will likely spark fierce competition among states for new manufacturing jobs.

The reasons are exactly what we've been touting for years.

After a decade of rapid globalization, economists say companies are seeing disadvantages of offshore production, including shipping costs, complicated logistics, and quality issues. Political unrest and theft of intellectual property pose additional risks.

"If you want to keep your supply chain tight it's hard to do that with a 16-hour plane ride from Shanghai to Ohio," said Cliff Waldman, an economist with the Manufacturers Alliance/MAPI, a public policy and economics research group in Arlington, Va.

Cat isn't the only one.

Last year, U.S. Block Windows Inc. purchased a company with a China-based molding operation. After studying logistics, which included shipping raw materials to China before finished products came back to the U.S, the company decided to move production from China to its headquarters in Pensacola, Fla.

"When we started looking at the costs and complexities of the inventory and lead times, there really wasn't any savings," said Block Windows' president, Roger Murphy. The company added 10 workers, increasing employment to 120, and can keep inventory levels lower because shipping times have been cut.

Kudos to these companies for seeing the light. Of course for every smart company there's still at least one dumb one.

Comments

“When we started looking at the costs and complexities of the inventory and lead times, there really wasn’t any savings”

I don’t get it. Don’t these people look at things like transportation delays *before* they make a geographical decision?

Half a day with a spreadsheet, or with pencil and paper, should give you a pretty good idea of inventory impacts. In a couple of weeks, you could have someone write a simple simulator and gain a pretty good feel for the impacts of various locations and transportation option.